iPhone Boom a Mixed Blessing for Chip Suppliers -- Heard on the Street
February 02 2021 - 11:36AM
Dow Jones News
By Dan Gallagher
Apple Inc. is definitely having a moment. For the many chip
companies who supply the tech giant, the question remains just how
long that moment will last.
Last week, Apple reported its best quarter in years. It enjoyed
strength across its business segments, but the key driver was the
iPhone -- which still accounts for more than half the company's
total revenue. iPhone revenue jumped 17% year over year to a record
$65.6 billion for the December quarter, thanks mainly to the launch
of the new iPhone 12 models in the fall. Apple no longer discloses
unit sales, but market research firms IDC, Canalys and Counterpoint
estimate the company shipped between 82 million and 90 million
iPhones during the quarter, which would also break the record 78.3
million units the company reported for the same quarter of
2016.
That is great news for the companies who supply key iPhone
components. Skyworks, which specializes in radio-frequency chips,
last week reported a 69% year-over-year jump in December-quarter
revenue to $1.5 billion -- 42% above Wall Street's expectations.
The stock has climbed 15% since that report. Cirrus Logic, whose
chips are used for audio encoding, reported Monday afternoon that
its December-quarter revenue rose 30% from a year earlier to about
$486 million.
More are on the way. Qorvo, a Skyworks competitor, is expected
to post a 23% increase in revenue for the December quarter on
Wednesday, according to consensus analyst forecasts. Also coming
Wednesday is December-quarter results from Qualcomm, which recently
won back its place in the iPhone's modem chip socket. Analysts
expect Qualcomm to post an 80% year-over-year quarterly rise in
chipset revenue, according to FactSet.
But dependency on Apple can backfire. Over the long term,
suppliers face the risk that Apple could design them out with its
own in-house chips. Over the short term, seasonal fluctuations can
also hurt. Cirrus projected March-quarter revenue in a range of
$280 million to $320 million -- the midpoint of which was only in
line with Wall Street's estimates. That would represent 7% growth
year over year, a significant slowdown from the previous quarter.
The company warned in its letter to shareholders that "our
customers can, and frequently do, change individual orders on short
notice." Apple accounted for 84% of Cirrus' revenue for the past
three quarters, according to the company's quarterly filing Monday.
Cirrus shares were down 5% Tuesday morning.
Skyworks generates a little more than half its revenue from
Apple, while Qorvo's exposure is around 33%. Both are well
positioned now given the demands of the 5G wireless standard, which
requires top-of-the-line radio frequency chips. But the iPhone is a
seasonal business; Apple typically generates about 38% of its
annual iPhone revenue in the December quarter.
Strong iPhone cycles also are coming more sporadically, as
smartphone users hold on to their devices for longer periods.
Apple's iPhone revenue has fallen in three of the company's past
five fiscal years, and the company declined to give its own
forecast for the March quarter last week, citing continued
uncertainty from the coronavirus pandemic. For chip companies
highly levered to Apple, that creates even more uncertainty.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
February 02, 2021 11:21 ET (16:21 GMT)
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